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Energy & Financial Markets

What drives petroleum product prices?

An analysis of key factors influencing petroleum product markets

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Consumption
Trade
Production
Prices
Financial Markets
Balance

What drives crude oil prices: Financial markets

Futures markets help establish future values for a commodity, which inform near-term trade decisions that can affect inventories and spot prices.

Gasoline and distillate both have futures contracts for delivery in New York Harbor on the New York Mercantile Exchange (NYMEX). Open interest (the number of contracts in a trading session that have not been settled or closed) and trading volumes have grown significantly since 2006 for both gasoline and distillate because of increased global consumption of the fuels, increased hedging activity, and increased financialization of commodities.

Open interest in gasoline and distillate futures contracts have increased substantially since 2006

Note: RBOB is the gasoline product produced at refineries for blending with fuel ethanol. Since the spring of 2013, the underlying commodity for the distillate futures contract has been ultra-low sulfur diesel (ULSD).
Data source: Bloomberg L.P.

Trading volumes of gasoline and distillate futures contracts grew substantially between 2006 and 2018

Note: RBOB is the gasoline product produced at refineries for blending with fuel ethanol. Since the spring of 2013, the underlying commodity for the distillate futures contract has been ultra-low sulfur diesel (ULSD).
Data source: Bloomberg L.P.

The Commodity Futures Trading Commission publishes a weekly activity report, the Commitment of Traders report, on oil and petroleum product open interest on exchanges (e.g., NYMEX). In this report, the activities of multiple trading categories are detailed, including physical participants (producers, merchants, processors, and end users), money managers (usually hedge funds or other sophisticated traders), and swap dealers (traditionally investment banks or commodity broker/dealers). Money managers generally tend to be net long—more futures contracts are bought rather than sold—on RBOB and ULSD futures, though significant changes in market expectations of demand and supply for these products can push overall positions to be net short.

Money managers usually buy more futures contracts than they sell

Note: RBOB is the gasoline product produced at refineries for blending with fuel ethanol. Since the spring of 2013, the underlying commodity for the distillate futures contract has been ultra-low sulfur diesel (ULSD).
Data source: Bloomberg L.P.